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Negative recency, randomization device choice, and reduction of compound lotteries

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  • Kaivanto, Kim
  • Kroll, Eike B.

Abstract

We report an experiment in which subjects are not indifferent between real-money lotteries implemented with randomization devices that are equivalent under the Reduction Axiom. Instead, choice behavior is consistent with subjective distortion of conditional probability, and this persists in treatment conditions that control for (i) computational limitations and (ii) possible confounding by ratio bias.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 115 (2012)
Issue (Month): 2 ()
Pages: 263-267

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Handle: RePEc:eee:ecolet:v:115:y:2012:i:2:p:263-267

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Reduction of compound lotteries; Negative recency effect; Law of small numbers; Design of experiments; St. Petersburg paradox; Myopic loss aversion;

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References

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  10. Halevy, Yoram, 2005. "Ellsberg Revisited: an Experimental Study," Microeconomics.ca working papers halevy-05-07-26-11-51-13, Vancouver School of Economics, revised 25 Feb 2014.
  11. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February.
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  16. Terrell, Dek, 1994. "A Test of the Gambler's Fallacy: Evidence from Pari-mutuel Games," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 309-17, May.
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Citations

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Cited by:
  1. Paolo Crosetto & Antonio Filippin, 2013. "The “bomb” risk elicitation task," Journal of Risk and Uncertainty, Springer, vol. 47(1), pages 31-65, August.
  2. Trautmann, Stefan T. & Zeckhauser, Richard J., 2011. "Shunning Uncertainty: The Neglect of Learning Opportunities," Working Paper Series rwp11-044, Harvard University, John F. Kennedy School of Government.
  3. Paolo Crosetto & Antonio Filippin, 2013. "A Theoretical and Experimental Appraisal of Five Risk Elicitation Methods," Jena Economic Research Papers 2013-009, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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